MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Chapter 3, Problem 22PAA
To determine
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Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5 percent to customers in those areas. One week later, the number of customers enrolled in Verizon’s cellular plans declined 4 percent in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the own-price elasticity of demand and, based on her findings, immediately increased prices in all market areas by 5 percent in an attempt to boost the company’s 2016 annual revenues. One year later, the manager was perplexed because Verizon's 2016 annual revenues were 10 percent lower than those in 2015—the price increase apparently led to a reduction in the company’s revenues.Did the manager make an error? Explain
Recently, Verizon Wireless ran a pricing trial in order to estimate the elasticity of demand for its services. The manager selected three states that were representative of its entire service area and increased prices by 5 percent to customers in those areas. One week later, the number of customers enrolled in Verizon’s cellular plans declined 4 percent in those states, while enrollments in states where prices were not increased remained flat. The manager used this information to estimate the own price elasticity of demand and, based on her findings, immediately increased prices in all market areas by 5 percent in an attempt to boost the company’s 2012 annual revenues. One year later, the manager was perplexed because Verizon’s 2012 annual revenues were 10 percent lower than those in 2011—the price increase apparently led to a reduction in the company’s revenues. Did the manager make an error? Explain
The following graph illustrates the market for almonds. It plots the monthly supply of almonds and the monthly demand for almonds. Suppose new
gathering technology is invented, allowing growers to produce more crops using the same amount of resources.
Show the effect this shock has on the market for almonds by shifting the demand curve, supply curve, or both.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back
to its original position, just drag it a little farther.
PRICE (Dollars per ton)
20
16
0
0
10
20
30
Supply
Demand
QUANTITY (Thousands of tons)
40
50
Demand
Supply
Chapter 3 Solutions
MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
Ch. 3 - Prob. 1CACQCh. 3 - The demand curve for a product is given by...Ch. 3 - Prob. 3CACQCh. 3 - Suppose the own price elasticity of demand for...Ch. 3 - Suppose the cross-price elasticity of demand...Ch. 3 - You are the manager of a firm that receives...Ch. 3 - A Quant jock from your firm used a linear demand...Ch. 3 - Prob. 8CACQCh. 3 - Prob. 9CACQCh. 3 - Prob. 10CACQ
Ch. 3 - Prob. 11PAACh. 3 - Prob. 12PAACh. 3 - For the first time in two years, Big G (the cereal...Ch. 3 - Prob. 14PAACh. 3 - You are a division manager at Toyota. If your...Ch. 3 - You are a manager in charge of monitoring cash...Ch. 3 - As newly appointed Energy Czar. your goal is to...Ch. 3 - As the owner of Barneys Broilers—a fast-food...Ch. 3 - Prob. 19PAACh. 3 - With milk sales sagging of late. The Milk...Ch. 3 - Prob. 21PAACh. 3 - Prob. 22PAACh. 3 - Prob. 23PAA
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- If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is a. price elastic. b. price inelastic. c. unit elastic with respect to price. d. perfectly inelastic.arrow_forwardOn Tuesday, the price and quantity demanded are 7 and 120 units, respectively. Ten days later, the price and quantity demanded are 6 and 150 units, respectively. What is the price elasticity of demand between the 7 and 6 prices?arrow_forward(Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?arrow_forward
- If automobiles and gasoline are complements, then their cross-elasticity coefficient is a. strictly greater than 1. b. positive. c. equal to zero. d. negative.arrow_forwardIn an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is 1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues?arrow_forwardProve that price elasticity of demand is not the same as the slope of a demand curve.arrow_forward
- Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a. Calculate the price elasticity of demand between 90 and 110. b. Is the price elasticity of demand between 90 and 110 elastic, unit elastic, or inelastic? c. Will Erins total revenue rise if she increases the price from 90 to 110? d. Calculate the price elasticity of demand between 110 and 130. e. Is the price elasticity of demand between 110 and 130 elastic, unit elastic, or inelastic? f. Will Erins total revenue rise if she increases the price from 110 to 130?arrow_forwardSuppose a straight-line downward-sloping demand curve shifts rightward. Is the price elasticity of demand higher, lower, or the same between any two prices on the new (higher) demand curve than on the old (lower) demand curve?arrow_forwardDuring a particular week six months ago, suppose that the price of a 1 pound slab of Scottish Coho salmon at your local grocery store was $20; currently the price is $25/lb. The manager informs you that 100 pounds were sold during a particular week six months ago when the price was $20/lb. while 80 pounds were sold this week. Calculate the price elasticity of demand (point formula, not midpoint/arc formula—consult the textbook). Based solely on your calculation, is the demand relatively elastic or relatively inelastic? If the grocery store is a price setter, should it increase or decrease the price of salmon to increase its revenue? Only consider this one good—keep it simple. Answer in a few sentences.arrow_forward
- Investigating the demand for textile in a country X, a researcher observed that the demand for textiles tend to rise by 1.5 per cent with one per cent decrease in the prices of textiles; with the rise in one per cent of per capita GDP, the demand for textiles rise by 0.45 per cent and when food prices increased by one per cent, the demand for textiles contracts by 0.93 per cent. (a) Identify the type of demand elasticities in this case and define them. (b) Which type of elasticity the textile mills should consider significant for business development? (c) How much rise in sales is expected during a festival season by offering 20 per cent discount by textile mills showrooms?arrow_forwardAfter graduating from college, you are hired by the Ford automobile company as an economic analyst. For your first project, you are asked to estimate what would happen to the sales of Ford Mustangs as a result of a change in (i) the price of a Chevrolet Camaro, (ii) the price of gasoline, and (iii) consumer incomes. You are given the following elasticities: Price elasticity of demand for Ford Mustangs = -2.5 Cross-price elasticity between Ford Mustangs and Camaros = 1.5 %3D Cross-price elasticity between Ford Mustangs and gasoline = -0.80 Income elasticity of demand for Ford Mustangs = 3.00 %3Darrow_forwardTransport economists Lasse Fridstrøm and Vegard Østli studied the demand for cars in Norway between 2002 and 2016. Regarding gasoline-powered cars, the own-price elasticity was −1.094, and the cross-price elasticities with respect to the prices of gasoline, electricity, and electric cars were −0.71, 0.06, and 0.19 respectively. As for electric cars, the own-price elasticity was −0.99, and the cross-price elasticities with respect to the prices of electricity, gasoline, and gasoline-powered cars were −0.18, 0.38, and 0.35 respectively.a. Referring to the above data, discuss whether gasoline cars and electricity are substitutes or complements.b. Electric cars are more expensive than gasoline cars. Compare the incomes of people who buy electric cars vis-à-vis those who buy gasoline cars.c. Considering the buyers’ incomes, explain why the demand for electric cars is less price elastic than the demand for gasoline cars.d. Why would the short-run demand for gasoline cars be less elastic with…arrow_forward
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